Global Growth Headwinds 02-04-16

The first few trading days of February, and volatility continues. Market participants are stressed out about signs of weak economic growth, and eager to book some more gains.

Data shows that even the U.S. is slowing. Here at home, some of the latest numbers, such as the January factory report from the Institute for Supply Management (ISM) were weak. On Monday, ISM’s factory survey showed a fourth consecutive monthly decline in U.S. manufacturing. The 48.2 January index reading was roughly even with the 48 mark of December, but that was its weakest level since June 2009—and, at less than 50, a sign of manufacturing contraction. Read more about Global Growth Headwinds 02-04-16

Technology for Income

Microsoft and Cisco: recovering growth, strong dividend

We have often made the case for technology companies as income investments. This issue, we concentrate on two companies that have been in a recovery mode, Microsoft (MSFT) and Cisco (CSCO).  

Although Microsoft performed strongly last year, vaulting over the $50 mark for the first time since 2000, the shares still look attractive to us, based both on the current valuation and the dividend yield.

In terms of valuation, market analysts on average expect Microsoft to grow at a nearly 10 percent annual rate, which explains why its forward P/E of about 19.7 does not look too rich to us, especially after we subtract all the cash and short-term investments (more than $99 billion as of September 30, 2015) Microsoft has on its balance sheet. Plus, as we previously reported, the recent 16 percent dividend increase also raises the yield on the shares to an attractive 2.8 percent.  Read more about Technology for Income

Markets Swing, and Swoon, and Soar 01-28-16

Market participants were more than a little underwhelmed yesterday by the Federal Open Market Committee (FOMC) statement after the central bankers' first regularly scheduled meeting of 2016. While the Fed restrained from a rate increase and acknowledged the risks to growth, the markets sold off yesterday and are volatile today.

The good news is that the slower-acting Fed—if the central bank sees enough risks to delay more tightening—means that the overall level of interest rates in the U.S. will be lower than was expected just a few months ago, and that, all else equal, less upward pressure will be applied to the U.S. dollar. The bad news is that the Fed indeed sees slower growth—while it still expects to implement some hikes this year.

The market declined sharply after the statement was released which reflects the fact that the FOMC did not completely jettison the idea of a potential second rate hike come March. Read more about Markets Swing, and Swoon, and Soar 01-28-16

Growth Worries Roil the Markets 01-21-16

This shortened holiday week, stocks are again volatile.

On Tuesday, the first trading day of the week, China's stock markets staged a rally, not derailed (and possibly caused) by the news that the world's second-largest economy had the slowest economic growth in a quarter century. We suspect that the markets had already priced in an even lower rate of growth than that was reported, so the actual report amounted to a positive surprise; further, China is expected to implement some kind of easing in response.

The market also worries that the sharply lower oil prices indicate that we will see slower growth in China. We believe, on the other hand, that the drop in oil is the result of oversupply, and that most economies will eventually see some benefits from lower energy costs.

The impact of the sharply lower oil prices can be clearly seen in the most recent Producer Price Index (PPI) and Consumer Price Index (CPI) data, released within the last few days. Read more about Growth Worries Roil the Markets 01-21-16

Roller Coasters Are Not Forecasters 01-14-16

Stocks looked flat this morning, and rallied this afternoon. However, U.S. and global markets this week have given participants a roller coaster ride fueled by sinking oil and commodity prices and worries of sluggish growth in China. Some investors looked at the results and felt their stomachs sink.

Meanwhile attention in many headlines turned to the record $1.3 billion Powerball jackpot. The record pot started at $40 million on November 4 and has since multiplied exponentially, until the bonanza reached historical proportions never before seen, attracting many people to throw their cash into the proverbial hat despite the infinitesimal odds of actually winning. Read more about Roller Coasters Are Not Forecasters 01-14-16